Finally, Some Financial Advice

Good for President Bush. He apparently opened the door yesterday to extending the wage base on which Social Security tax is levied beyond the current $90,000. This one modest change would go a very long way to solving the Social Security ‘crisis’ all by itself.

(Right now, the rate we and our employers’ each pay is 6.2% of the first $90,000 or so, after which it drops to zero. Rather than extend the current 6.2% rate to $140,000, say, and then, as now, drop it to zero, maybe drop it to 1% or 1.5% after $90,000 and keep it there no matter how much one earns.)

As for private accounts . . . your IRA, your Keogh Plan, your SEP or SIMPLE or 401K or 403B or even just your own private brokerage or mutual fund account? We already have them, and I hope you are funding yours. No need to privatize Social Security – let alone borrow $2 trillion more in the process.

A HUMP

John Ryan: ‘The hump is not a listening device, it’s a medical device that shocks the heart in case it stops beating.’

☞ Can’t be – the White House has said it was bad tailoring.

But I do see that theory circulating. Here, for example. What it doesn’t offer is an adequate explanation for President Bush’s testy ‘I’m not finished‘ – when no one was interrupting him. I’m waiting for anyone to come up with a plausible explanation other than the obvious.

If he wore a wire, that’s cheating. And denying it is lying. The rightwing press just shouts this down. But what IS their explanation?

And now . . .

A CONFESSION

I haven’t written much about money lately. I spent part of my day at Jury Duty today contemplating the reasons.

First, I must confess, there are only so many times I can bring myself to write about the pros and cons of pre-paying your mortgage or the virtues of dollar-cost averaging or the similarity that index funds bear to thoroughbreds with 20-pound jockeys on their backs (when all the other horses in the race have 100-and 200- and even 300-pound jockeys). This is the two thousand two hundred twenty-third column in this space, and all but the first couple hundred are in the archives, so you can just go back and read them. Or flay yourself with thorns. Failing that, you could buy or borrow the latest copy of my book.

Second, I do think most people should do most of their stock market investing via a steady program of buying US and international index funds, month in and month out, leaving at most a relatively small kitty to be managed on your own, whether for the tax control it gives you (deduct the losses; use the long-term gains to fund your charitable giving) or for the sheer fun of it. So how can I write that over and over?

Third, though I have certainly had some clunkers (those March Google puts are looking awful), I have been amazingly lucky. Part of me wants to quit making suggestions while I’m ahead and part of me, as always, is very loath to see you lose money. Which leads to . . .

Fourth, it’s hard to see great bargains in stocks, long-term bonds, or real estate these days, hard to get excited . . . though it’s always possible that with Arafat’s death and Iraq’s election we are at the beginning of what could be – and let us pray it is – a long virtuous cycle of peace and increasing global cooperation and prosperity. (Or, we could be nearing an upturn in inflation and interest rates that could burst the real estate bubble and send our debt-burdened economy into a tailspin. Bad results in the Gulf and in Venezuela could send oil, and the Rapture Index, soaring.)

Then again, I just bought some Comcast after reading in yesterday’s New York Times that Warren Buffett’s team has picked up another 5 million shares and that Glenn Greenberg, one of the smartest money managers I know, has 25 million shares in his fund. Of course, I assume they paid less than I did, which always makes me nervous (the stock was as low as $25.89 in the last 52 weeks, compared with its $32.33 close last night). But – while they’re not always right – these guys are right a lot more often than I am, and never get into a stock for just a small gain. And then, of course, there’s Borealis, which is easily worth ten times its current price if there is anything ‘there’ there, and vastly more than that in the unlikely event it were all they claim . . . but which could absolutely be worth nothing – although by now, having long owned a ton of it, I seem to have persuaded myself there is some there there, and that, market psychologists will tell you, is a sure sign of disaster. So Borealis is only for that tiny sliver of your dough, if any, you can truly afford to lose without a pang.

And while we’re at it, the Korea Fund suggested here December 23 at $22 closed last night at $26.60, up 20% in two months (I am holding on) . . . and for those of you who keep track, here is the wrap-up I posted October 29th with today’s updates in red.

1. Google – GOOG – which went public at $85 in a Dutch auction, continues to soar, closing at $193.30 yesterday [$198.41], bought in great quantity by people who didn’t care to buy it at less than half the price two months ago. (Nearly 15 million shares traded hands yesterday, or nearly $3 billion worth.) The puts I’ve bought are obviously not doing well. [Not well at all!]

2. ARC – so far, so bad, as well. Down from just over $14, where I suggested it, to $12.70 [$12.30] last night. If this troubled trailer park real estate investment trust were able to solve its problems and maintain its $1.25 distribution, it would have a phenomenal yield. I’m not tremendously confident, but I’m holding mine.

3. Apple LEAPs. Suggested here last November 25 at around $4 when the stock was just above 20, Apple’s long-term calls (known as LEAPS) are now around $30 [$70], with the stock at $50 [$90]. Stupidly, foolishly, and reprehensibly [not to mention idiotically, haplessly,and pusillanimously], I suggested selling half at the end of March, for little more than a double (what was I thinking?), thinking that you would be then be playing ‘with the house’s money’ with the rest. And later, when the LEAPS had tripled, I suggested perhaps selling a like number of out-of-the-money calls to make for what would have been a likely quadruple while you waited for the LEAPS to go long-term. So if you followed these suggestions, you would have long since doubled half your money and quadrupled the other half, but be sitting here like me, rocking back and forth wringing your hands, imagining how sweet life would be if you had just held on.

4. Borealis – BOREF – the great lottery ticket of this column. At $7-ish [$8-ish], it’s about double where I first started suggesting it years ago as the ‘stock that would surely go to zero’ – unless it didn’t, in which case it would go to the moon. But, boy (as I stressed), was this ever too good to be true. Well, as before, there’s a good chance it will be zero. But the upside it so enormous if it’s real, I plan to hold mine (I have a ton of it) until I’m either the envy of my nursing home, and Charles comes to visit me on Sundays in one of our two helicopters . . . or, more likely, until it’s gone to zero and I get to write a funny story about it.

5. CICI was suggested here at 35 cents on December 23, 2003. When it hit 90 cents not long after, I suggested selling two-thirds of it. The remaining third got back down close to 35 cents but last night closed at 68 [44] cents, so overall we have better than a double. I plan to hold my remaining third a while. Who knows?

6. Oil stocks have been suggested here from time (February 16) to time (June 14), including TXCO at $4.50 (now only a little higher, at $5.30 [$5.15]) . . . APC, suggested at $56.50, now $67.50 [$70] . . . and CSPLF, up from $4.30 or so to $6.30 or so [$5.12]. Maybe oil will be $8 a barrel next year, after the Iraqis throw flowers and start pumping in earnest again. But my current plan is to hold all these for some time to come.

7. SYM, suggested here in February a hair below $8 a share is now $10.45 [$13.88], up 30% in six months [75% in a year]. I plan to hold on until ‘something happens.’ There is the hope they will sell out and that the value of their real estate handily exceeds the current price.

8. TIPS, PCL and TRF were mentioned here May 4, at $119, $30.20 and $35.70 respectively. (I had suggested them before, at lower prices; this was a progress report.) Half a year later, they closed last night at $127, $36.60 and $41, respectively (plus a little ‘yield’ along the way from the first two). I wouldn’t rush to buy them at these prices, but I might well still own them in 10 years. [The TIPS, maturing April 15, 2032, closed yesterday at $136; PCL at $38.20 and TRF at $41.85, though I had December 13 suggested perhaps swapping out of that and into KF. The only thing I can tell you for virtually certain is that the TIPS will be redeemed at $100 on April 15, 2032 – plus a factor for all the inflation that had accrued in the prior 30 years, which so far is about 7.5%. I am holding PCL with confidence that their trees will continue to grow; and some TRF in hopes for Russia but less confidence.]

9. ILA, CMM were suggested earlier, but on May 10, when one of you asked about them, they were around $3.90 and $10.75, and I said I was holding them. ILA has dropped to $3.15 or so [$3.70], CMM risen to $16 or so [$16.34] – and I’m still holding them.

10. NTII was suggested August 16 at $2.60, closed last night at $3.65 [$4.18], and I’m holding it, too.

All in all, not a bad year. On some kind of blended average maybe up 30%?

But that raises all the usual caveats and more. First, if I could do this well consistently, I wouldn’t have to write this column. I got lucky. Second, you don’t find me doing these little recaps when things are bad – by being able to report to you when I want to, not on some fixed schedule, the game is stacked in my favor. Third, when I have done OK, as now, that generally bodes ill. From now on you should probably short all the stocks I suggest, except for the ones I suggest shorting, like Google, which you should buy. Fourth, there is the inadvertent but real tendency to forget to include the clunkers. So if you blame me for some stock I forgot to include here, just me-mail me and I will try to wriggle out of any responsibility for it by blaming my subordinates. Fifth, most people should do the preponderance of their stock market investing – if they should be in the stock market at all – via something as simple and sensible as Vanguard Index Funds. Low expenses and tax exposure all but guarantee you will do better than most of your friends who try harder. Sixth, the stock market is risky. You must promise me to invest only money you won’t need to touch in the next year or three. Because you don’t ever want to be in a position where you’re selling because you have to – only because you want to. Seventh, I think the next few years in the stock market could be challenging. If you’re young, by all means get into the habit, or continue the habit, of investing $500 a month, or whatever you can afford – and be thrilled if the market drops. That just means you can buy new shares ‘on sale.’ But if you’re 70, I sure wouldn’t have all my money in the stock market at today’s levels (or any levels). I’ve seen arguments that the broad market averages are 40% lower than their fair value. But that assumes interest rates will stay low, and other things will go right, and there is some risk in those assumptions. So I have a fair amount in stocks, but a fair amount not in stocks. I am a very fortunate fellow to have enough assets to be able to diversify, and I have a President working hard to try to make me even more fortunate by borrowing money from your children to lower my taxes.